Implied Volatility from Asian Options Via Monte Carlo Methods
International Journal of Theoretical and Applied Finance, Vol. 12, No. 2, pp. 153-178, 2009
Posted: 2 Dec 2009
We discuss how implied volatilities for OTC traded Asian options can be computed by combining Monte Carlo techniques with the Newton method in order to solve nonlinear equations. The method relies on accurate and fast computation of the corresponding vegas of the option. In order to achieve this we propose the use of logarithmic derivatives instead of the classical approach. Our simulations document that the proposed method shows far better results than the classical approach. Furthermore we demonstrate how numerical results can be improved by localization.
Keywords: implied volatility, Monte Carlo simulation, Asian options, exotic options, calibration, local volatility
Suggested Citation: Suggested Citation